Meet Adam. Adam’s business has had a strong year. He wants to keep some profit in the business to fund growth, but it’s flowing through to him and being taxed at his personal rate. He wonders whether a company would be better. It might be worth reviewing, but the answer depends on the numbers and what Adam plans to do with the money.
A well-planned business restructure can reduce the tax paid on business profits and give you more flexibility over how those profits are used. I see business owners stay in a structure that made sense when they started, even after the business and its profits have grown.
When should you review your business structure?
Consider getting tax structuring advice if:
- Your business income has grown and you’re paying tax at your top marginal rate.
- You’re retaining profits to fund growth.
- You’re operating as an individual or through a trust and considering a company.
- Your business has changed, but your structure hasn’t.
The key question is whether your structure still suits the way you earn, retain and use business profits.
Who qualifies for the 25% company tax rate?
Companies that qualify as base rate entities pay tax at 25%. Other companies generally pay 30%. Many base rate entities are small businesses, but the rules don’t simply depend on a company's size. Some investment companies may also qualify if they meet the eligibility tests, including the test for passive income. The ATO sets out the company tax rates and eligibility rules for the 2025-26 income year.
That rate applies to the company’s taxable income. If profits are paid to you, your personal tax position also matters. If profits stay in the company to fund growth, a company structure may reduce the tax paid upfront compared with having that income taxed to you personally. It doesn’t necessarily remove tax on those profits altogether.
That’s why the right business structure depends on what you plan to do with the money. It’s important to look at how much profit the business needs to retain, how much you need to draw and what the tax outcome looks like across the business and for you personally.
What does a business restructure involve?
A business restructure might mean moving a business from an individual or trust structure into a company, or changing how existing entities work together.
You need to understand the tax consequences before transferring assets or changing ownership. Capital gains tax, GST or state taxes may apply, depending on what’s being transferred and how the restructure is done.
Some eligible businesses may be able to use the small business restructure roll-over. It has specific requirements, including that the transfer forms part of a genuine restructure. Read more about how the small business restructure roll-over works.
You also need to plan the practical steps. That can include setting up entities, transferring assets where appropriate, updating agreements and records, and making sure the business reports income through the right entities.
Start with what you want from the business
A tax-effective structure should support what you’re trying to do. If you want to retain profits and grow the business, that may point to different options than if you need to distribute most profits to the owners.
Your advisor can compare the current structure with the alternatives, look at the tax position and help you plan the steps to make a change.
Ready to review your business structure?
If your business income has grown or you’re paying tax at your top marginal rate, BlueRock’s tax and business advisors can review your structure and identify whether there’s a more tax-effective way to run the business. Get in touch via the form below.
Disclaimer: The content is intended as general information/advice only and should not be considered as advice on any matter and should not be relied upon as such. This has been prepared without taking into account any individual objectives, financial situation or needs. You should therefore consider the appropriateness of the information in regard to these factors before acting or seek advice before making any financial decisions. Any scenarios mentioned are fictional and for illustrative purposes only.
